Power Cost Equalization Explained
by Maisie Thomas
The Alaska Legislature goes into session on January 19 and, along with the Permanent Fund Dividend, an important topic for rural Alaska is the fate of the Power Cost Equalization (PCE) Program.
Power Cost Equalization is an energy subsidy given to rural residents and communities. The Legislature established it as a fund of the Alaska Energy Authority in 1985 with the goal of addressing increasing disparities in the cost of energy between rural and urban Alaska. In remote parts of the state, the cost of power can be as much as three to five times higher than in urban areas. This is in part because rural communities are powered primarily with diesel fuel, which is expensive and costly to transport to communities off the road system. The majority of rural Alaska was not connected to electricity until after the rest of the state had already switched to natural gas. Natural gas is cheaper due to state-subsidized energy projects, such as development projects in Cook Inlet. However, it is not cost-effective for the state to invest in projects that would lower energy prices for rural Alaskans because of the high cost of construction and operation in remote areas.
“The PCE program was established to insure rural residents received an ongoing benefit at the same time the State invested heavily in projects that reduced power costs in the Railbelt area,” John Handeland, Nome mayor and general manager of Nome Joint Utility System, explained in an interview last year.
To assist rural residents with their energy bills, the PCE program equalizes the cost of power in rural communities to the average cost in cities. Over 84,000 Alaskans in nearly 200 communities across the state benefit from PCE reimbursements, which in 2018 paid out roughly $26.2 million. For context, the program in 2016 appropriated about $31 million, and $26 million in 2017. But the assistance is important for more than just helping people pay their monthly bills.
According to Handeland, the PCE program has a “significant impact on both our residents and the City.” Nome received $865,528 in PCE payments for the Fiscal Year 2019. The PCE subsidy averages about $800 per household per year in Nome, with the residential electrical rate dropping from roughly 0.407 cents to .229 cents per kilowatt hour.
“Reliable lower cost of energy enhances the quality of life, standard of living and economic strength of the communities,” reads the Alaksa Energy Authority's PCE program guide. “Economic development and affordable power go hand-in-hand in the effort to grow healthy economies in rural Alaska.”
Both individual residents and communities are eligible for the program. Individuals receive PCE credit for up to the first 500 kilowatt hours consumed each month and community facilities--defined by the AEA as facilities that operate not for profit but for the benefit of the general public-- receive up to 70 kilowatt hours per month per resident. Community facilities include water and sewer plants and charitable educational facilities. The City of Nome receives PCE funds for multiple community facilities, as well as for its streetlights.
Less than 30 percent of energy sold in rural communities is eligible for the PCE Program. Yet the benefit for individual residents can be profound. Without the equalization, the cost of energy for rural residents could increase by as much as 500 percent. A further issue is that houses in rural villages are often built inefficiently, so energy consumption is higher than the national average. For instance, residents of St. Michael received $1,900 through the program in 2019--substantially more than that year’s PFD check. And, with many households already struggling economically due to the COVID-19 pandemic, programs such as the PCE are now more vital than ever.
Because it is solely for remote areas, the debate over the PCE Program highlights the rural-urban divide in Alaskan politics. Rural legislators such as Representative Neal Foster, a Democrat from Nome, fear that his urban colleagues will attempt to fund full PFD checks with money from the PCE endowment fund.
“...The first pot of money that urban legislators will want to raid to help pay for a full PFD is rural Alaska's energy assistance program,” Foster said earlier this year. “The PCE fund has $1 billion in it, and a full PFD costs $2 billion.”
PCE payments are made from the earnings of a dedicated endowment fund. Last year the PCE Program was at risk when Alaska Governor Mike Dunleavy swept the endowment fund into the Constitutional Budget Reserve (CBR) and proposed funding the PCE Program with the CBR.
The sweep itself is an annual event -- at the end of the state fiscal year, savings accounts designated to fund specific programs are drained, or “swept” into the CBR. So, at midnight on June 30, these accounts are empty. But because much of the money is needed to complete projects or allow programs to continue, the Legislature passes the reverse sweep, which puts the funds back into their respective accounts by 12:01 on July 1.
The PCE fund historically has been protected, because all previous administrations determined that the account was not sweepable. As a result, the PCE was always funded without requiring the reverse sweep. Yet because the current administration determines which accounts are sweepable, Dunleavy decided that the PCE endowment fund could be appropriated.
Even if the PCE had been swept in the past, in most years the reverse sweep happens without being noticed. This was not the case in 2019, when the House Republican minority refused to pass the reverse sweep. It took the 40-member House three tries to garner the necessary three-quarters supermajority, but the reverse sweep eventually passed 31-7. The legislation passed the Senate 19-0. However, due to waiting for the reverse sweep, rural Alaskans did not receive PCE credit for the month of July 2019.
Foster explained that if the PCE endowment fund is appropriated, the program would still exist, but payments would come from the general fund. This means that the PCE Program would need to “compete with anything else from education to public safety to transportation,” said Foster. Should this be the case, rural legislators worry that the battle to secure funding for the PCE Program would become an annual event.
Learn more
- Alaska Energy Authority PCE homepage
